Insure This By Bill Velin
billv@leefmurphy.com
Avoid a RentalCarDisaster!
lthough the cost of purchasing com- prehensive and collision coverage (also known as the Loss Damage Waiver or Collision DamageWaiver) can be out- rageous, you may be best advised to pur- chase it for short-term rentals (less than 30 days). Here is why!
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1. Loss valuation Thevalue of a rental car according to vir-
tually all rental agreements is determined at the sole discretion of the rental company and may be largely different from the Actual Cash Value (ACV) used by most auto insurers. The standard Personal Auto policy covers “the lesser of the ACV or the amount necessary to repair or replace the vehicle.” The Rental Agree- ment may very well contractually obligate you to reimburse the rental company for the “full value” of the vehicle (whatever that is), with your personal auto policy leaving you significantly underinsured.
2. Loss Settlement There may be a disagreement over the
value of the vehicle or labor and materi- al charges to repair it, and depending on your carrier, the Appraisal Clause may be invoked by your insurer with the cost being covered partially by you. More importantly, your insurer has the right to “inspect and appraise the damaged vehi- cle before its repair or disposal.” However, the rental company may choose to effect the repairs immediately, potentially void- ing your coverage because of failure to comply with the appraisal clause–anot so uncommon occurrence.
3. Loss Payment The Rental Agreement may require
immediate reimbursement for damages and it is not uncommon for the rental company to charge your credit card. This, of course, can create a significant debt, max out your credit card, shorten a trip, result in litigation, etc.
18 Automotive Recycling | November-December 2016
4. Loss Damage Waivers (LDW) TheRental Agreement usually requires
reimbursement for more than collision, making you responsible for any loss in value of the vehicle – beyond normal wear and tear regardless of fault. And obviously, your personal auto policy must include collision coverage for at leastone owned vehicle in order for the rental vehi- cle to have collision coverage. Therefore, if the Rental Agreement has
a Loss Damage Waiver, your personal auto policy must also have Compre- hensive Coverage in order for you tohave “other than collision coverage” on the rental vehicle. Even so,keep inmindthat your contractual liability under the Rental Agreement may be almost absolute so it is possible your personal auto policy may not respond to all losses. Likewise, it is possible that your personal auto policy may respond to losses not covered by a Loss Damage Waiver such as use off paved roads,use while intoxicated,use by unlisted drivers, etc. Therefore it is criti- cal that you have both your personal auto coverage and the loss damage waiver cov- erage offered by the rental company.
5. Indirect Losses You will likely be responsible for the
rental company’s loss of rentalincomeon a damaged vehicle. Your personal auto policy has, at best, daily and maximum caps for this indirect loss, and in most cases, will pay for loss of the rental com- pany’s loss of rental income only resulting from theft of the vehicle. Additionally, rental car companies are increasingly charging for “diminution of value,” an indirect loss that is not covered by any personal auto policy’s physical damage section nor most credit card cov- erages. We have seen examples of these charges for amounts in excess of $7,500!
6. Administrative Expenses The rental contract may make you
liable for various “administrative” expens- es such as towing, storage, appraisal, etc.
7.Other Insurance The personal auto policy says it is excess
over: (1) any coverage provided by the owner of the auto (does coverage include Rental Car company self-insured plans?) (2) any other physical damage insurance, and (3) any other source of recovery applicable to the loss – Collision Damage or Loss Damage Waiver, travel policies, credit card coverages, etc. If your credit card coverage says it is “excess of the auto policy?,” who pays can result in litigation.
8. Exclusions The normal auto policy does not cover
motorcycles, motorhomes, etc., and use of covered vehicles is limited to the U.S., its territories and possessions, Puerto Rico, and Canada. And, one large cover- age gap can exist when using valet park- ing during a
trip.Manyrental companies will have an exclusion for “any drivers not listed on the rental agreement.” You can see the many exposures that
are excluded from the rental companies coverage and are not covered by your per- sonal auto policy and vice versa. It is always a very wise decision to purchase the rental companies Loss Damage Waiver and Liability Coverage, unless you have a policy that includes liability coverage for “hired and non-owned” vehicles. But you should always purchase the rental companies Loss Damage Waiver (comprehensive&collision coverage)!
Bill Velin recently acquired his book of busi- ness – including the ARA Program – from Wells Fargo and has partnered with Assured Partners of Minnesota dba Lee F. Murphy In- surance, one of the largest insurance agencies
in the country. This new agency represents all of the same carriers as the old agency did, so the move will be seam- less to the current and future customers of the program. For more information on how participating in the ARA
national Insurance Program can benefit your business, contact Bill Velin at 651-294-0705 (direct) or by e-mail at
billv@leefmurphy.com.
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